How does Capital One Calculate its Credit Card Currency Exchange Rate?

Typically, when you use an american credit card to buy a product in a different currency, the credit card company will charge you a 2-3% fee right away – called the foreign transaction fee – before it converts the currency according to the latest exchange rate.  If you travel a lot, the foreign transaction fees can add up very quickly.  Fortunately, there are a number of credit cards, including all Capital One cards, that charge NO foreign transaction fees. For a list of these cards, use this post from Nerd Wallet .   If you are reading my post, however, I’ll assume you already know about the no transaction fee credit cards, and are interested in some more in depth questions like: How does the credit card company determine their currency exchange rate, and can the credit card company use the exchange rate to charge hidden fees?

The best way to answer these questions is to use an actual credit card transaction with my Capital One Visa card as an example.  I will provide copies of my receipt and credit card statement of one  transaction in Part 1.  In Part 2, I’ll answer questions about the currency exchange.

Part 1 – The Transaction Documents:

I am a proud owner of a Capital One Visa card precisley because of its no foreign transaction fee.  I have taken the liberty of posting photos of 1. my actual paper receipt, 2. a screenshot of my credit card Statement, and 3. a screenshot of my transaction list from Capital One’s website.  All of these documents contain information about a customs tax transaction that I made in Hannover, Germany on February 1st, 2013.

1. Actual paper receipt: Below is a photo copy of my receipt (Quittung) from the Customs Office (Hauptzollamt) in Hannover, Germany.  The important information here is the Total (Summe) I paid, which was 37.80 Euros, and the date (Einzahlungstag), which was 01.02.2013.  Please note that the date on this receipt is in DD.MM.YYYY format, which is typical in Germany.    

Paper Reciept

2. Screenshot from my Captial One Credit Card Statement: When I paid  37.80 Euro for the custom tax, I used my Capital One credit card where I have an account in the United States.  Since my account is in US Dollars, the transaction had to be converted from EUR to USD before it showed up on my statement.  Below is a screenshot of a small part of my February Credit Card Statement (my account number is blacked out) where it lists the transaction “Nebenzollzahlstelle HannoHannover” and the exchange rate used.  You can see that my 37.80 Euro transaction became a 51.84 US dollar transaction once the exchange rate was applied.

CaptialOne Statement

3. Screenshot from my transactions list on Capital One’s website:  Below is a screenshot of my transactions list that you can find by logging into your Capital One online account.  The transactions listed here are exactly the same as the transactions that show up in your monthly credit card statement, with one notable difference.   In the online transaction viewer, you can click the “+” button next to the transaction date and it will show you both the Transaction date, and the Posting date  In my example, it shows that while the transaction actually occurred on February 1st, the transaction did not post until February 2nd.  This is an important distinction because Capital One (and most credit card companies) calculate the exchange rate based on the date of the posted transaction.

Transaction and Details


Part 2 – The Currency Exchange:

How does Capital One determine its currency exchange rate? The answer is pretty simple actually.  Capital One uses the exact exchange rate that is posted on the Visa Corporate Exchange Rates webpage (Link updated 11/2014).   This is based on my conversations with Capital One customer service, other credit card message boards like here, and – most importantly – checking the data for myself.  Below are two screen shots of Visa’s webpage (the input screen on top and the output screen on the bottom) that show Visa’s exchange rate for February 2nd, 2013.

Visa Input Page

Visa Output Page

You should take note two things.  First, is that I set the the bank foreign transaction fee to 0%.  Second, is that Visa’s exchange rate is the inverse exchange rate of what was provided on my credit card statement.  The  exchange rate  on my credit card statement was in USD to EUR, whereas the Visa exchange rate is given in EUR to USD.  In order to compare apples to apples, I converted Capital One’s exchange rate to a  EUR to USD rate.  This is done simply by taking the inverse:  1 / 0.72916667 = 1.371429.  In the end, the exchange rates do not match exactly – Capital One  has an exchange rate that is .005% (five thousandths of one percent) higher.   The difference, however, is negligible, since both exchange rates result in a final cost of $51.84 after rounding.


Does Capital One hide extra fees in its exchange rate? No, not that I can tell.  A lot of people are skeptical when they hear Capital One say “No Foreign Transaction Fees!”  They think that maybe Capital One makes up for the 0% transaction fee by having a higher currency exchange rate than other cards that are Visa sponsored.  In fact, you might look at the extra .005% that is added in my example above and say “Aha! thats how they get you!”  But that would that be really silly for Capital One, who makes entire advertising campaigns on “No Fees.”  If they were going to try and recoup the money they lost by having a 0% foreign transaction fee, wouldn’t they increase your exchange rate by a lot more that .005%?  After all, other banks charge up to 3% foreign transaction fees.

After reviewing a few of my other credit card transactions,  I found that the difference between Visa’s exchange rate and Capital One’s exchange rate varied for every transaction.  Capital One does not up-charge .005% for every transaction, in fact, sometimes the Capital One exchange rate is lower than Visa’s.  I’ve compared three of my transactions below, two of which were posted on the same date.  Interestingly, Capital One listed two different exchange rates for the two transactions that were posted on the same day.  I won’t post screenshots of my statements and receipts like the first example for the sake of brevity – you’ll just have to take my word for it.

Transaction Comparison

Why the variation in Capital One Exchange Rates?  The difference in exchange rates appears to be the result of Capital One trying to avoid having to deal with tenths or hundreths of a cent.  Allow me to explain.   In transaction 2, when you multiply 409.60 Euros by 1.307666  (Capital One’s inverse exchange rate), you get $535.6199997.  When rounding up at a precision of 6 decimal places, you end up with $535.620000 exactly.   As shown in the screenshot below, all of Capital One’s currency exchanges result in perfectly whole numbers (no fractional cents) when you round and use a precision of 6 decimal places.

Decimal Precision

I assume that this means that Capital One uses 6 decimal points for all of their banking transactions.  If they used Visa’s exact exchange rate instead and rounded with a precision of 6 decimal places, they would have charged me $535.616307.  Since I am only going to pay Capital One exactly $535.62, they would in effect be losing $0.003693 ($535.620000 – $535.616307) for that transaction.  When you think about the millions of transactions that they process every year, that small amount could end up being pretty big – just ask the characters in the movie Office Space.  For me, as the credit card holder, the slight difference from Visa’s currency exchange rate doesn’t matter because I always end up paying the correct amount and don’t have to worry about fractional cents.

In the end, the important thing to know is that Capital One really does just use the exact exchange rate posted by Visa.  This is also supported by the nerd wallet study, which shows that while foreign transaction fees can vary among credit card companies, the exchange rates don’t.  Now that you know exactly how Capital One does it, you are probably curious how Visa comes up with their rates and how they compare with other methods of currency exchange.  These questions are tackled in the next post How does Visa Calculate its Currency Exchange Rate?